US to withdraw preferential trade treatment to India

United States President Donald Trump has announced to end preferential trade treatment to India under GSP (Generalised System of Preferences). He has accused India of not providing US “equitable and reasonable access” to its markets. The termination India’s GSP beneficiary designation will come into effect after 60 days of notification sent to US Congress followed by enactment of Presidential Proclamation.

Generalised System of Preferences (GSP)

It is preferential tariff system extended by developed countries to developing countries. It also known as preference receiving countries or beneficiary countries. It was introduced in 1976.

It is preferential arrangement in sense that it allows concessional low or zero tariff imports from developing countries.

It is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries both developing and developed countries.

Objective of US-GSP: (i) Give development support to poor countries by promoting exports from them into developed countries. (ii) Promote sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with US.

Benefits: Under it, wide range of industrial and agricultural products originating from certain developing countries are given preferential access to US markets.

In India’s case, GSP enables duty-free entry of 3,500 goods in US markets, which benefits exporters of agriculture, textiles, engineering, gems and jewellery and chemical products.

Total US imports under GSP in 2017 was $21.2 billion, of which India was largest beneficiary with $5.6 billion, followed by Thailand ($4.2 billion) and Brazil ($2.5 billion).

Impact on India

Bilateral trade between India and US stood at $74.5 billion in 2017-18. US has trade surplus of $27.3 billion. Terminating GSP status will put to end duty-free import of around 1900 goods from India into US. It will be strongest punitive action taken by President Donald Trump against as part of agenda of reducing US deficit with large economies.

According to Government, this withdrawal will not have any major impact on overall Indian exports to US as concessions availed under this scheme were minimal. Total GSP benefits availed by India under GSP programme were to tune of $190 million on trade $5.6 billion. So, benefits both in absolute sense, and as percentage of trade involved, are very minimal and moderate.

Background

Withdrawal of GSP beneficiary status to India comes after over year of back-and-forth between two countries over trade issues.

The high tariffs imposed by India US goods has been contentious issue between two countries in past few years especially after Donald Trump became President.

Trump administration is demanding for relaxation in norms for exports of its medical devices and dairy products which India has denied.

This has led Donald Trump, who has resolved to reduce trade deficit of US with other countries (including India), to announce withdrawal of GSP status from India.

US goods and services trade deficit with India was $27.3 billion in 2017. The withdrawal of the status may reduce this gap.